The price of copper has almost doubled in a year. Other commodities are also rising fast.

There is no stopping commodity prices at the moment. Whether it is copper, platinum, iron ore or tin, the prices of many industrial metals are rising rapidly. The situation is similar for agricultural commodities such as corn or soybeans.

In the automotive industry, there have already been shortened working days and idle assembly lines. The main problem is the shortage of chips and electronic components. «Bottlenecks in the supply of semiconductors continue to be an obstacle to a further increase in production,» says the German Association of the Automotive Industry (VDA). Microchips have become indispensable in automotive production. However, due to supply bottlenecks, some car manufacturers’ assembly lines are at a standstill. And the rising price of various metals, such as steel, rhodium or palladium, is also making car production more expensive. BMW’s chief financial officer, Nicolas Peter, expects additional costs of between 500 million and 1 billion euros for the year as a whole due to rising raw material prices.

The copper price increased by more than $1,750 per tonne during February 2021. We expect demand to increase throughout 2021, especially in the automotive and power sectors. Europe’s planned energy transition away from coal and nuclear power is driving demand and is receiving increasing political support. The automotive industry will be boosted by e-mobility, the trend towards autonomous driving and the increased use of electronics in passenger cars. We continue to expect copper mine production to normalise in 2021, which should have a dampening effect on prices. Developments in investment demand had a price-increasing effect in February 2021: The number of commercial contracts increased by around 35%. By the end of the second quarter of 2021, we expect a price level of USD 9,000/t with a movement in a band of USD 1,200/t around this mark.

Throughout February 2021, scrap prices failed to maintain their January peak and fell by an average of €30/t from the previous month’s level. German steel mills continue to keep their order books well filled. Supply of most scrap grades also remains tight. In the first half of February, exports to Turkey were significantly lower and weighed on the price level. However, supplies via waterways and other transport routes were limited due to weather conditions. Spot iron ore prices in February 2021 hovered around the previous month’s level of around $160/t, but are likely to have downside potential in 2021. We expect scrap prices to move more sideways in March 2021 at the current level and to soften in the second quarter.

Demand also plays an important role in price increases. Here, too, the pandemic has had a key role. Overall, the economy, which is in decline in many places, is expected to recover as vaccinations progress continues and restrictions ease. This should also benefit demand for commodities, which is already reflected in rising prices. In addition, the financial policy of many states and central banks during the Corona crisis has an influence, according to Eugen Weinberg, chief commodities analyst at Commerzbank, Germany. Their policy has injected a lot of money into the commodity markets and has also pushed up prices.

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*We do not provide financial advice in any of our articles. Our articles are in no way a suggestion to invest in certain companies and their shares. Any investment carries risk and must be considered on a personal and individual level.